What to Know in Washington: Government Shutdown Threat Looms

A fresh fiscal showdown is brewing in Washington that threatens to complicate the Federal Reserve’s policymaking and strengthen Fitch Ratings’ warning that self-inflicted wounds are tarnishing America’s standing in the global economy.

Congress left for August recess without resolving conflicts over spending and social issues, raising the risk of a government shutdown when federal funding runs out after Sept. 30. It’s the latest case of brinkmanship over the national budget that fueled Fitch’s move to strip US debt of its prized AAA status last week — a decision that’s caused hand-wringing across Wall Street and Washington.

Photographer: Olivier Douliery/AFP via Getty Images

The Federal Reserve building in Washington, D.C.

The credit rating company’s determination has emboldened Republicans to call on President Joe Biden and congressional Democrats to yield to their demands for fresh spending cuts.

Read more: Fitch’s US Downgrade Is Stoking the Very Fight It Warned Against

While the direct economic impact of a shutdown would likely be limited, it would come at “at a particularly inopportune moment,” warned Anna Wong, chief US economist for Bloomberg Economics.

The Fed will be making a key interest-rate decision in September and the increased likelihood of a prolonged shutdown could factor into that stance. During the 2018-2019 shutdown, many key economic indicators were delayed.

Meanwhile some 45 million Americans with student loans will have to resume making payments in October, potentially dampening consumer spending, while the prospect of a disruptive UAW strike against automakers that month is very real. Add the fact that the impact of Fed rate hikes will peak in the autumn, according to Wong, and the seemingly unstoppable US economy faces fresh hurdles. Erik Wasson and Edward Harrison preview the looming economic threat.

BIDEN’S AGENDA

• The president and first lady return to the White House from Wilmington, Delaware to welcome the Houston Astros and celebrate their 2022 World Series win around 1 p.m. The second gentleman will also attend.
• Shortly after 6 p.m., the president will depart the White House to travel to Grand Canyon Village, Arizona.
• Press Secretary Karine Jean-Pierre will gaggle aboard Air Force One en route to Arizona.

News From the Biden Administration

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Politics, Probes and 2024

Trump Says He Can’t Get a Fair Trial in ‘Filthy’ Washington

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• More than half of Americans say Trump tried to stay in office through illegal means, a CBS News/YouGov poll shows. Read more.

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• US attorneys alerted a judge about a social media post made by Trump that could be taken as a threat to those involved in several of the criminal and civil cases arrayed against him. “If you go after me, I’m coming after you!” the former president wrote in all caps in a post on his Truth Social media platform Friday afternoon. Read more.

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What Else We’re Reading

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Deadly Crashes With Roadside Semis Inspire Push for More Parking

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Ohio Election Spurs Business Groups to Ally With Abortion Foes

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Google Wins Limits to Antitrust Trial Claims on Search Deals

Google will face a scaled-down antitrust suit over its search business after a federal judge threw out some allegations by state attorneys general.

Supreme Court Extends Temporary Stay Allowing ‘Ghost Gun’ Rule

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US, China to Create New Communication Lines

The US and China will establish new lines of communication to engage on sensitive issues, the Financial Times reported.

Ukraine Peace Plan Talks End With Few Concrete Steps

A peace plan pitched by Ukraine and its allies to more than 40 countries this weekend in Saudi Arabia brought little in the way of concrete steps to stop the war or reverse Russia’s territorial gains.

To contact the reporters on this story: Giuseppe Macri in Washington at gmacri@bgov.com; Brandon Lee in Washington at blee@bgov.com

To contact the editor responsible for this story: Kayla Sharpe at ksharpe@bloombergindustry.com